estate planning under NY state law for terminally ill person

Sorry to hear about your father's illness.

This can be a tricky situation given (1.) the separation of spouses and (2.) the mortgaged property.

First, New York State statute does not allow a decedent to disinherit a spouse (still considered spouses until legally divorced) without the written and acknowledged waiver by the surviving spouse. Therefore, Dad cannot leave everything to children unless Mom consents in writing. Even if Dad does a new Will to disinherit Mom, that will not be enough without a waiver by Mom.

Second, probate proceedings only govern assets held in the decedent's sole name; therefore, assets owned by a trust or joint owners are not subject to probate (although they may be subject to the surviving spouse's claim). A trust could work to convey title ownership and avoid probate, but, trusts can be expensive. A cheaper and easier way would be to have Dad execute a Deed conveying his interest in the real estate to the children before he dies. That would avoid probate following Dad's death because the children would already own the real estate; HOWEVER, you need to keep in mind that the real estate is still subject to a mortgage and the conveyance of real estate from Dad to any person or a trust could violate the terms of the mortgage, causing the loan to be called due and payable. If a mortgage refinance is completed, all title owners would have to apply for the new mortgage. If Dad conveyed the property to 2 kids, both kids would have responsibility for the mortgage.

Third, Dad should make sure he signs a Durable Power of Attorney and Health Care Proxy / Living Will so that he may appoint an agent to handle his affairs when he is no longer able to do so.

Durable Power of Attorney: A Durable Power of Attorney is a legal document in which you appoint an agent to make financial decisions on your behalf during your lifetime in the event you become incompetent or disabled. A Durable Power of Attorney often avoids the necessity of costly and protracted guardianship proceedings. A Durable Power of Attorney terminates upon your death.

Living Will/Health Care Proxy: A Living Will/Health Care Proxy is appropriate for anyone who is concerned about being kept alive in an unconscious or vegetative state when there is no reasonable likelihood of recovery. A Living Will allows you to document your wishes concerning treatment in the event you become terminally ill while a Health Care Proxy allows you to designate an agent to make health care decisions in the event you are unable to do so.

While agree with most of what was posted, there are 2 important items that need to be stated.

While it is true that you cannot disinherit a spouse in NY, there is an exception if there is a legal separation. Therefore, your mother would not have the right to demand a portion of your father's estate.

Secondly, if your father transfers the house and real property to you before he dies, you can be stuck with high capital gains tax. Under the tax law, if property is gifted, the recipient's tax basis is the same as the person making the gift. So if your father paid $10 and the property is worth $100 when he dies and you sell it, you have a $90 taxable gain.

If property is inherited or passes because of death, the recipient's tax basis is equal to the value on the day Dad died. So if he paid $10 and it is worth $100, and it is sold for $100 there is no taxable gain. How can this be accomplished? You can use a trust or will or there are 2 ways you can do it with a deed. One way is to have Dad deed it to you and your brother but retain the right to live there for the rest of his life (his condition is irrelevant) or have Dad deed it to himself and the 2 of you with rights of survivorship. Either of these methods will get you the "step up" in tax basis.